Focus: Global Supply Chain and Logistics

From SCDigest's On-Target e-Magazine

Global Logistics News: As Threat of East and Gulf Coast Port Strike Once Again Looms, Archaic Container Royalty System Could be the Deal Breaker or Maker

Both Sides Appear to be Digging In, As Port Efforts to Rein In Costly Bonus Program Off the Table, Union Says

SCDigest Editorial Staff

The global logistics industry dodged a bullet of sorts when the union representing East and Gulf Coast dock workers and the association representing 14 ports and their terminal operations agreed in late September to extend the contract from its original expiration on September 30 to Dec. 29. That deal avoided strike in the midst of the peak import season that could have caused a level of logistics chaos and driven up costs for shippers and importers.

SCDigest Says:

The royalty payments reached $211 million in 2011 alone, averaging some $15,500 per worker at the 14 affected ports.

What Do You Say?

Well sure enough, that new deadline is just around the corner once again, as saber rattling from both the International Longshoremen's Association and the U.S. Maritime Alliance (USMX) that represents the port interests in the negotiations do node bode well for a settlement, with the next rounds of talks not scheduled until days before the extended contract ends.

One somewhat freshly exposed bone of contention: a dated "container royalty" system that is a windfall for the union and union members that the ILA president says is off-limits in terms of negotiations.

The next round of negotiations are scheduled to start Dec. 20, just nine days before the contract ends, and planned to last three days or longer if necessary.

But in recent days, ILA leader Harold Daggett has said that several key issues to USMX, including overtime, working hours and caps to the container royalties system, will not be considered as part of the discussions.

Meanwhile, USMX CEO James Capo, called the ILA leadership "uncompromising," saying that they "view bargaining as a one-way street that leads only in their direction."

"Throughout the course of the negotiations, USMX has given due consideration to ILA demands and shown its willingness to compromise on issues such as automation and chassis repair," Capo added. "It is disappointing that ILA negotiators have refused to give the same consideration to issues that concern USMX and the employers it represents."

The deadline was obviously extended in September because a deal could not be reached then. With a short period between the next round of talks and the new deadline, what appears to be hardened positions on both sides, and somewhat less pressure on port and terminal operators now that the peak season is finished, and it seems chances for a strike are high.

"I pledged to my rank-and-file members that I would not agree to anything in the Master Contact that would take away any of our hard won gains of the past," said ILA’s Daggett in the past week.

The 14 affected ports would try to maintain operations using management and perhaps outside, non-union workers. But throughput would slow dramatically, and costs would rise. Freight forwarder DSV Air & Sea, for example, has said it will institute a congestion surcharge as of December 5, 2012. Others logistics companies are following suit. (The surcharges only apply if there is in fact a strike or lockout.)

Ports Would Like to Slow Growth of Container Royalty Gravy Train

In the 1950s and early 1960s, as containerized freight started to take hold, port workers were concerned the resulting improved handling of freight would lead to massive job losses. So, they were able to negotiate a fee that would be paid by ports and terminal operators on each container that moved through the port - the idea being that this would provide compensation for the loss of jobs that each container in effect represented.

The first such royalty payments were made in 1968 at the ports of New York and New Jersey. They later spread to other East and Gulf Coast ports.

While the number of dock workers did decline in New York, the shipping container opened up opportunities for ports and ILA members in places like Savannah and Houston. Trade volumes and the number of containers moving through the ports soared many fold over the past 50 years.

The royalty payments reached $211 million in 2011 alone, averaging some $15,500 per worker at the 14 affected ports. With the increased tonnage and a general decline in the number of ILA members in the past 20 years or so, payments per ILA member have continued to rise. At Savannah, for example, they increased from $6,028 in 1996 to nearly $36,000 per worker in 2011.

Naturally enough, the union takes a slice, bringing the ILA itself more than $20 million last year.

However, ILA workers receiving those hefty checks today have no real connection to the perceived threat from container traffic to manually loaded freight and handling work that started the whole program in the 1960s.
Daggett said recently that preventing a cap on the payments is one of the "key battles" the union faces, and that he was "disappointed that USMX continues to post on its website its unwavering position" on the issue.

Meanwhile, the USMX responded by saying ports need to "begin to control" but not eliminate the royalties, which it calls "bonuses." It says it wants to uses savings from some kind of caps to pay for rising healthcare costs and other benefits workers receive.

We will keep you posted. A return to work after the new year may find east coast container traffic at a standstill.

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